Rewards Network operates in an ever-increasingly expanding and competitive space – online and mobile advertising and marketing– but they must be doing it right. In a form 8-K filed with the Securities and Exchange Commission yesterday, Rewards disclosed that it had received non-binding proposals from a party interested in the strategic acquisition of all outstanding shares. That “interested party” turned out to be Sam Zell and his private equity firm Equity Group Investments, who’s informal offer came with a hefty premium for shareholders.
The offer was for the remaining outstanding shares of Rewards Network (Zell and his firm already owns about 26.4% of the common shares), to be purchased by Equity Group at a price of $13.50, roughly 37% higher than the closing price of $9.90 a share the day before. After the letter was received by Zell and his team yesterday, executives formed a special committee of independent directors of the board of directors of the company is evaluating these indications of interest and other strategic alternatives. Reward has engaged Harris Williams & Co. to assist in evaluating the indications of interest received to date and to pursue a broader exploration of strategic alternatives in an effort to enhance shareholder value.
Tripp Levy PLLC, a national law firm that specialized in mergers and acquisitions, has today begun conducting an investigation as it concerns, among other things, whether the consideration to be paid to Reward shareholders is grossly unfair, inadequate, and substantially below the fair or inherent value of the company. The investigation further concerns whether the directors of Rewards may have breached their fiduciary duties by not acting in shareholders' best interests in connection with the sale process of Rewards.
Sam Zell is a legendary private investment entrepreneur, having built his fortune on real estate and media leveraged buy-outs (LBO). Most notably was the April 2007 LBO of the Tribune Company, which owned the Chicago Tribune and the Los Angeles Times, a deal that drove Tribune into Chapter 11 bankruptcy just a year and half later. Zell was known for an uncanny ability to resurrect faltering companies, real estate, and other investment projects, but this time the proprietary debt LBO’s are constructed on got the best of his efforts.
Should the Rewards buy-out go through, that same LBO fate is unlikely with this deal because Rewards is a profitable and growing company, not the distressed dogs his firm typically acquires and then diligently struggles to turn around to realize an eventual profit. In March, Rewards said its full year net income rose 10% to $5.3M or $.59 per share while revenue slipped 8% to $108.6M. Should the investigation turn up the findings that Zell’s offer is grossly underestimating the value of the company, strap in – that share price will skyrocket again.
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Disclosure: no positions